Greece agrees to new bailout terms – and more austerity

ATHENS, Greece â€” Greece and its rescue creditors have reached a deal needed to unfreeze the country’s bailout program and avoid a default this summer, though it leaves Greeks facing years more of austerity and hardship.

Following months of tough negotiations, the government and creditors agreed that Greece should make another round of pension cuts in 2019 and commit to maintaining a high budget target along with new tax increases after the current bailout program ends next year.

In return, the creditors will pay Greece 2.8 billion euros ($3.1 billion) it needs to avoid defaulting on its loans in July, and start talks on how to ease the country’s debt burden.

Prime Minister Alexis Tsipras’ left-wing government is set to approve the new cuts in parliament by mid-May, so that finance ministers from the nations using the euro can unfreeze more bailout funds at a scheduled meeting on May 22.

Tsipras’ governing coalition has a majority in parliament of just three seats.

Greece has been surviving on bailout loans since 2010 in return for harsh spending cuts and tax increases that have put nearly a quarter of the workforce out of work and seen more than a third of the population living in poverty or at risk of poverty.

Tsipras’ governing Syriza party is trailing badly behind rival conservatives in the polls, and he has insisted it will not seek elections until his term ends in 2019.

“We are paying the price of Mr. Tsipras’ deception,” conservative opposition leader Kyriakos Mitsotakis said. “He promised us more funding without austerity, but what we ended up with is more austerity and no additional funding.”

The agreement with creditors was reached after a nightlong session of talks at a hotel in Athens. Government officials said lenders dropped their demands to abolish a long list of employment rights and also agreed to the expansion of benefit schemes for jobless and low-income families.

Hours before the deal, protesters had gathered at the entrance of the hotel during large May Day rallies in the capital, but riot police blocked them from entering the building.

The European Commission, International Monetary Fund and European financial institutions welcomed the agreement and noted that “the Greek authorities have confirmed their intention to swiftly implement this policy package.”

They said in a statement that the deal “will now be complemented by further discussions in the coming weeks on a credible strategy for ensuring that Greece’s debt is sustainable.”

EU Economic and Financial Affairs Commissioner Pierre Moscovici said “it is time to turn the page on this long and difficult austerity chapter for the Greek people. With this agreement, we need now to write a new story of stability, jobs and growth for Greece and for the euro area as a whole.”

Tsipras’ government, which rose to power on an anti-bailout platform, had initially aimed at finalizing the current round of negotiations with creditors last December.

The delay has threatened hopes to return to economic growth after years of recession and stagnation fueled by austerity measures and a reversal of chronic overspending by the state.

Greece faces a spike in bailout loan repayments in July, and needed to unlock the additional funds to avoid the threat of bankruptcy.

After a run of recent gains, shares on the Athens Stock Exchange were up nearly 3 per cent on the news of the agreement. Government borrowing costs were also lower, a sign of growing investor confidence, with the rate on Greece’s 2-year-bond dipping below 6 per cent, compared with 10 per cent in February.

“The fact that the negotiations lasted several months will have consequences on the Greek economy,” said Vagelis Sioutis, head of equities at Guardian Trust Securities in Athens.

“The (official) target for 2.7 per cent growth (in 2017) at the moment looks very difficult, if not unattainable.”

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Lorne Cook in Brussels and Theodora Tongas in Athens contributed to this report. Follow Gatopoulos http://www.twitter.com/dgatopoulos